Flowserve Corporation · NYSE:FLS
Flowserve — Investor Day (December 2018)
114 slides from Flowserve's investor day presentation, Dec 13, 2018
Slide 1: 2018 Analyst Day
2018 Analyst Day New York City December 13, 2018
Slide 2: Forward Looking Statements and Non-GAAP Measures
Forward Looking Statements and Non-GAAP Measures Safe Harbor Statement: This presentation includes forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934, which are made pursuant to the safe harbor provisions
Slide 3: Hotel Safety
Hotel Safety • If there is no imminent danger, we need to shelter in place and wait for announcements through the building-wide public address (PA) system. • Should there be a need for in-house relocation or a building evacuation all instructions will come through the PA system. • The Manhattan Ball
Slide 4: Agenda
Agenda Welcome Jay Roueche, Vice President, Treasurer and Investor Relations Company Overview Scott Rowe, President and Chief Executive Officer Products & Services Review John Lenander, Valves & Automation David Wilson, Engineered and Industrial Pumps Kirk Wilson, Seals and Aftermarket Services & So
Slide 5: Company Overview
5 Company Overview Scott Rowe, President and CEO 2018 Analyst Day
Slide 6: Investment Highlights
Investment Highlights Distinguished history of flow control expertise with a heritage of more than 225 years Company Overview Diversified business model – geographies, end markets and products Recovering end markets, evidenced by year-over-year increased bookings Markets End Significant installed ba
Slide 7: A Powerful History of Industry Leadership
A Powerful History of Industry Leadership The Flowserve Legacy Powerful legacy of more than 225 years of industry leadership with a respected portfolio of established brand names known worldwide. 1790 2018 2018 Analyst Day 7
Slide 8: Flowserve at a Glance
Flowserve at a Glance Geographic diversification Increasingly engaged including significant high associates focused on growth emerging market ~17,000 meeting and exceeding exposure Employees customer expectations Over 50 Over 50 Countries Leading Product Brands Capturing highly profitable Respected
Slide 9: Diversified Business Model
Diversified Business Model ~60% of Business Outside North America Balanced Platform 6% 11% 21% 20% 2018 YTD 49% 2018 YTD Sales Europe Sales 21% North America Industrial Pumps Asia Pacific 31% 41% Middle East & Africa Valves and Actuation Latin America Engineered Pumps & Seals Attractive End Markets
Slide 10: Aftermarket Focus Provides Stability Through Cycles
Aftermarket Focus Provides Stability Through Cycles Aftermarket Sales Highlights $ millions Down 12% from 2014-2017 in • Aftermarket is a resilient, high-margin business the “Industrial Recession” $2,000 • Extensive network of Quick Response Centers (QRCs) • Industry-leading worldwide QRC coverage s
Slide 11: A Comprehensive, Pure-Play Flow Control Company
A Comprehensive, Pure-Play Flow Control Company Highlights AFTERMARKET • Only company with significant global presence in pumps, valves and seals PUMPS • Unmatched aftermarket capabilities to serve customers across industries and geographies SEALS ‒ Enterprise Frame Agreements ‒ LifeCycle Advantage
Slide 12: The Power of a Pure-Play
The Power of a Pure-Play Isolation Control Atmospheric Isomerization Valve Valve Distillation Hydrotreater Vacuum Distillation Catalytic Hydrocracker Reformer EXAMPLE: Vapor Recovery Delayed Alkylation System Coking Typical 400K Barrel/day Refinery Liquid Ring Pump Compressor and and Seals Seals 201
Slide 13: Serving Attractive End-Markets
1 3 Serving Attractive End-Markets 2018 Analyst Day
Slide 14: Factors Driving Forecasted Growth
Factors Driving Forecasted Growth Macroeconomic Industry-Specific Other Factors • GDP • Commodity Prices • Regulation • Population Growth • Chemical Demand • Environmental • Industrial Production • Aging Infrastructure • Domestic Investment • Energy Demand • Emerging Market Infrastructure • New Reso
Slide 15: Global Mega-Trends Drive Energy Demand
Global Mega-Trends Drive Energy Demand Source: ExxonMobil 2018 Energy Outlook Population growth, demographic changes and global economic growth support energy infrastructure investment 2018 Analyst Day 15
Slide 16: Industrial Markets Growing
Industrial Markets Growing Capital Expenditure (YoY % change) 80% 60% 40% 20% 0% -20% -40% Oil & Gas Chemical Power Generation General Industry Overall, signs of stability and cautious optimism with strongest growth expected in emerging markets ___________________________________________ Source: S&P
Slide 17: Strong Relationships with Key Customers
Strong Relationships with Key Customers GENERAL INDUSTRY POWER GENERATION WATER CHEMICAL OIL & GAS Diverse customer base anchored by the premier names in each of the markets we serve 2018 Analyst Day 17
Slide 18: The Journey
1 8 The Journey 2018 Analyst Day
Slide 19: Flowserve 2.0: Transforming the Organization
Flowserve 2.0: Transforming the Organization Legacy Flowserve Flowserve 2.0 The operating model worked well during the last period of expansion: • Flexible organization for any market environment • Decentralized operations • Empowered local organizations • Globalized operations • Responsive to a wid
Slide 20: The Transformation Journey
The Transformation Journey 2017 2018 2019 2020 2021 2022 STABILIZE TRANSFORM – FLOWSERVE 2.0 OPTIMIZE 2018 Analyst Day 20
Slide 21: Actions to Stabilize
Actions to Stabilize Focus Areas • Flatten organizational structure PURPOSE why we exist • Assemble a strong leadership team VALUES what’s important to us with internal and external experience VISION what we want to be • Elevate key roles including CIO, STRATEGY Marketing & Technology and Operations
Slide 22: Committed to Driving Change
Committed to Driving Change New Team Member New Role Scott Rowe CEO David Wilson Kirk Wilson John Lenander Elizabeth Burger Lee Eckert President, EPD President, AMSS President, FCD SVP, CHRO SVP, CFO & IPD Lanesha Minnix Keith Gillespie Doug Short Eric van Gemeren Richard Waddams Open SVP, CLO SVP,
Slide 23: Redefining Our Purpose
Redefining Our Purpose PURPOSE Together, we create extraordinary flow control solutions to make the world better for everyone. 2018 Analyst Day 23
Slide 24: Living Our Purpose
Living Our Purpose Making the world better for everyone AFSLUITDIJK: HOLLAND The pumps involved are the largest that Flowserve has ever built (impeller diameter of 4.6m is nearly 15ft), and they will protect the FLOOD PROTECTION Netherlands from future flooding as part of the Afsluitdijk development
Slide 25: Creating Meaningful Core Values
Creating Meaningful Core Values SAFETY PEOPLE Create safe work places and products for our employees, Trust and value each other. customers and communities. INTEGRITY INNOVATION Do the right thing, always. Be empowered with a mindset to do things differently. 2018 Analyst Day OWNERSHIP Be accountabl
Slide 26: Delivering Success in 2018
Delivering Success in 2018 People Process Financials • New leadership in place • Launched Flowserve 2.0 • Accelerated revenue Transformation conversion • Improved functional support model • Aligned strategy and • Improved operating margins execution plans • Purpose and values driven • Increased focu
Slide 27: Products & Services Review
Products & Services Review John Lenander, Valves and Automation David Wilson, Engineered and Industrial Pumps Kirk Wilson, Seals and Aftermarket Services & Solutions 2018 Analyst Day
Slide 28: Solar Power: China Clean Energy
Making the world better for everyone SOLAR POWER: CHINA Flowserve molten salt pumps and valves will be applied in a series of CSP pilot projects in western China. Rural regions in western China will benefit CLEAN ENERGY from the electricity generated from these CSP plants in the future. 2018 Analyst
Slide 29: Flow Control Operating Structure
Flow Control Operating Structure FCD Competitive Strengths Europe 10 Plants ▪ Broad and differentiated product portfolio supports North 5 QRCs Enterprise Frame Agreements America ▪ Large global installed base 5 Plants Asia ▪ Predominantly serve MRO activity with full project Pacific capability 9 QRC
Slide 30: Flow Control End-Markets
Flow Control End-Markets Industry Bookings Mix Regional Sales Mix OE/AM Sales Mix 2% Oil & Gas 11% North America 26% 22% 34% Europe Original Equipment 2018 YTD Chemical 2018 YTD 45% 2018 YTD 22% Bookings Sales Asia Pacific Sales Aftermarket 11% Power Middle East & Africa 78% 29% General Industries 2
Slide 31: Representation of Flow Control Product Offering
Representation of Flow Control Product Offering EvG • Replace Picture Linear Control Valve Trunnion-Mounted Ball Valve Electric Actuation • Control valves are the largest, most • Full range of on/off and control ball • More than 1 million installed around global product line in FCD valves for O&G, p
Slide 32: Flow Control Financials
Flow Control Financials Revenue Operating Income & Margin% * $ millions $ millions 20.0% $1,600 19.1% 18.5% $300 17.2% 17.0% 16.3% 16.4% $1,200 15.8% $200 $800 $100 $400 $0 $0 2011 2012 2013 2014 2015 2016 2017 Q3 '18 2011 2012 2013 2014 2015 2016 2017 Q3 '18 TTM TTM * 2015-2018 operating income adj
Slide 33: Flow Control Strategy
Flow Control Strategy ► Expand portfolio for broader array of applications and solutions Process & ► Increase investment in automation development Technology ► Increase standardization and Design-to-Value for critical product lines ► Strengthen customer alliances Customer ► Globalize core brands in
Slide 34: David Wilson
David Wilson Engineered and Industrial Pumps 2018 Analyst Day
Slide 35: City of Dallas Flood Protection
Making the world better for everyone CITY OF DALLAS Flowserve Concrete Volute Pumps were selected to upgrade the FLOOD PROTECTION current Dallas flood protection system. Flowserve products will protect the city of Dallas from flooding, prevent loss of life and alleviate infrastructure and environmen
Slide 36: Engineered Products Operating Structure
Engineered Products Operating Structure EPD Competitive Strengths Europe 9 Plants ▪ Large global pump and seal installed base North 27 QRCs ▪ Broad product portfolio with extensive design and America application expertise 9 Plants Asia ▪ Pump original equipment largely serves greenfield Pacific and
Slide 37: Engineered Products Overview
Engineered Products Overview Industry Bookings Mix Regional Sales Mix OE/AM Sales Mix 3% 10% Oil & Gas North America 17% Chemical 13% Europe 30% 39% Original Equipment 2018 YTD 2018 YTD 2018 YTD 12% Bookings 50% Power Sales Asia Pacific Sales Aftermarket General Industries 23% Middle East & Africa 7
Slide 38: Representation of Engineered Pump Product Offering
Representation of Engineered Pump Product Offering Concrete Volute Pump Multi-Stage Refinery Pump Single-Stage Pipeline Pump • Proven reliability and track record for • Proprietary hydraulic designs provide • Field-proven, wide range of products very high-flow raw water supply in efficient, lower en
Slide 39: Engineered Products Financial Overview
Engineered Products Financial Overview Revenue Operating Income & Margin% * $ millions $ millions 17.4% 17.0% 16.8% 16.4% 15.8% $2,500 $400 14.9% $2,000 $300 12.2% 11.9% $1,500 $200 $1,000 $100 $500 $0 $0 2011 2012 2013 2014 2015 2016 2017 Q3 '18 2011 2012 2013 2014 2015 2016 2017 Q3 '18 TTM TTM * 2
Slide 40: Industrial Products Operating Structure
Industrial Products Operating Structure IPD Competitive Strengths Europe 8 Plants ▪ Broad industrial product portfolio serving a wide North 19 QRCs range of industrial markets and distribution America ▪ Large global pump installed base driving parts and 5 Plants aftermarket opportunities Asia 6 QRCs
Slide 41: Industrial Products Overview
Industrial Products Overview Industry Bookings Mix Regional Sales Mix OE/AM Sales Mix 4% 11% 15% Oil & Gas 7% North America Chemical 12% Europe Original Equipment 2018 YTD 2018 YTD 41% 39% 2018 YTD Bookings 21% Power Sales Asia Pacific Sales Aftermarket 61% 45% General Industries Middle East & Afric
Slide 42: Representation of Industrial Pump Product Offering
Representation of Industrial Pump Product Offering Overhung Process Pump Vacuum System Non-metallic Sealless Pump • Process pump with outstanding • Patented dry-vacuum technology and • Magnetically-driven pumps for a wide hydraulic performance, reliability and proprietary liquid-ring technology rang
Slide 43: Industrial Product Financial Overview
Industrial Product Financial Overview Revenue Operating Income & Margin% * $ millions $ millions $1,000 $95 12.9% $800 11.9% 11.1% 10.0% $70 $600 7.2% 4.6% $400 $45 0.8% $200 $20 -0.3% $0 2011 2012 2013 2014 2015 2016 2017 Q3 '18 -$5 2011 2012 2013 2014 2015 2016 2017 Q3 '18 TTM TTM * 2015-2018 oper
Slide 44: New Pumps Organization
New Pumps Organization ▪ Single Flowserve Pumps organization Structure ▪ Common and seamless customer interface ▪ Leveraging organizational and operational capabilities Industrial Product Division Flowserve ▪ Consistent and simplified operating models Pumps Process ▪ Further product rationalization
Slide 45: Pumps Strategy
Pumps Strategy ► Implement simplified and standardized processes Process & ► Aggressive new pump product development Technology and Design-to-Value initiatives ► Product rationalization and standardization ► Expand or enhance end-user relationships Customer and frame agreements Focus ► Leverage comb
Slide 46: Kirk Wilson
Kirk Wilson Seals and Aftermarket Services & Solutions 2018 Analyst Day
Slide 47: China Integrated Refining Complex
Making the world better for everyone Hundreds of Flowserve pumps and valves are supplied to Hengli Integrated CHINA INTEGRATED Refining Complex Project, a 400,000 barrel-per-day final conversion refinery on Changxing Island in Dalian, China. The project will supply REFINING COMPLEX petrochemical raw
Slide 48: Global Aftermarket Operating Structure
Global Aftermarket Operating Structure Global Aftermarket Competitive Strengths ▪ Unmatched local presence of Europe QRCs 51 QRCs ▪ Experience and expertise in solving customers’ most critical North problems America Asia Pacific ▪ Comprehensive aftermarket 57 QRCs offering: parts, service, repair Mi
Slide 49: Flowserve Global Installed Base
Flowserve Global Installed Base Customer installation (Size represents number of units) Industry's largest installed base of more than 5 million pumps, valves and seals 2018 Analyst Day 49
Slide 50: Representation of Aftermarket Services Offering
Representation of Aftermarket Services Offering Repairs & Upgrades Long-Term Agreements Parts • On-site and off-site maintenance, • LifeCycle Advantage – partner with • Strategically located global parts engineering and reliability services customers for reliability improvements, manufacturing cente
Slide 51: Representation of Seal Product Offering
Representation of Seal Product Offering Mechanical Seals Seal Support Systems Compressor Seals and Systems • Complete family of mechanical seals • Provide a favorable environment for • Most capable dry seals in the industry over the widest variety of industrial mechanical seals to deliver years of f
Slide 52: Flowserve Aftermarket Strategy
Flowserve Aftermarket Strategy ► Implement enterprise-wide aftermarket operating models Process & ► Capitalize on predictive technologies and reliability-based solutions Technology ► Continue to differentiate our services through technology investment ► Enhance overall customer experience Customer ►
Slide 53: Technology & Innovation
53 Technology & Innovation Eric van Gemeren, Chief Transformation Officer 2018 Analyst Day
Slide 54: Fresh Water: Singapore Desalination Plant
Making the world better for everyone 50 Flowserve pumps operating in Singapore’s Tuas Desalination Plant 3 FRESH WATER: SINGAPORE producing 136 million liters per day of desalinated water to help DESALINATION PLANT strengthen Singapore's water supply resilience in order to meet the nation’s growing
Slide 55: Aligned Technology Program
Aligned Technology Program CHANGING CUSTOMER NEEDS EXAMPLE PRODUCT & TECHNOLOGY SOLUTIONS Lighter, Smaller Products with Higher Pressures Capital and Flow Rates Corrosion- Constraints High Strength Noble-Alloy Resistant Hardfacing Alloys Coatings Materials Increased Computational Process Efficiency
Slide 56: Committed to Technology
Committed to Technology Organization Strategic Alignment Project Focus ▪ Created new Marketing & ▪ Aligned long-term product ▪ Streamlined project Technology (M&T) roadmaps with business portfolio organization strategy ▪ Rebalanced investment ▪ Brought together Strategy, ▪ Reinforced leverage of bet
Slide 57: Technology Roadmap
Technology Roadmap 2015 - 2017 2018 2019 2020 and beyond LIMITED AND PROACTIVE INCREASED PROACTIVE DIFFERENTIATE THROUGH REACTIVE SPEND INVESTMENT INVESTMENT TECHNOLOGY • Incremental product • Gap fillers • Technology development • Breakthrough products improvements • Design-to-Value • Focus on prio
Slide 58: Case Study: Industrial Internet of Things Improving Customer Uptime
CASE STUDY: Industrial Internet of Things (IIoT) Improving Customer Uptime Creating new sources of value In continuous process industries, the cost of purchasing and commissioning new equipment is a small fraction of the total life cycle costs Reducing customers’ operating costs is exceptionally dif
Slide 59: Flowserve's Solution: Intelligent Performance Solutions
Intelligent Performance Solutions (IPS) Flowserve’s Solution Integration of hardware and software Superior Analytics Platform-Agnostic & Predictive Power Solutions Differentiated “Best in Class” Service & Repair Collaborations 2018 Analyst Day 59
Slide 60: IIoT Development Roadmap
IIoT Development Roadmap Enabling Technologies Infrastructure, IoT platform software, machine learning Analytics Development Flowserve proprietary predictive analytics and engineering Customer Pilots 8 Field testing, validation Commercialization Business model, pricing 2015 2016 2017 2018 2019 2020
Slide 61: IPS Demonstration
IPS Demonstration Predictive analytics allow us to evaluate the pump’s operating conditions and predict both failure modes and remaining time to maintenance 2018 Analyst Day 61
Slide 62: Flowserve 2.0
6 2 Flowserve 2.0 Scott Rowe, President and CEO 2018 Analyst Day
Slide 63: The Transformation Journey
The Transformation Journey 2017 2018 2019 2020 2021 2022 STABILIZE TRANSFORM – FLOWSERVE 2.0 PLAN WAVE 1 IMPLEMENT PROJECTS WAVE 2 PROJECTS WAVE 3 PROJECTS MEASURE OPTIMIZE 2018 Analyst Day 63
Slide 64: Transforming Flowserve
Transforming Flowserve 2018 Analyst Day 64
Slide 65: Flowserve 2.0 Workstreams
Flowserve 2.0 Workstreams 2018 Analyst Day 65
Slide 66: Flowserve 2.0 Scope and Magnitude
Flowserve 2.0 Scope and Magnitude Benefits by Workstream 1,913 5,392 Each workstream has clear targets to acheive towards total benefit 8% Unique Staff hours 43% 49% discussions on spent identifying the Case for and prioritizing Change individual projects PLAN. IMPLEMENT. TRACK. 58 People working 12
Slide 67: Flowserve 2.0 Program Management
Flowserve 2.0 Program Management PORTFOLIO MANAGEMENT STRUCTURED PROCESS • Executive • Phase-gate • Dedicated • Time-phased • Standardized oversight of process for Transformation trade-offs between metrics for cost TRANSPARENCY people, process, projects Office cost and benefits and benefits GOVERNAN
Slide 68: Operations Workstream: Improve Manufacturing Performance
Operations Workstream Improve Manufacturing Performance Drive operations productivity by implementing lean principles while reducing product lead times Step change improvement in manufacturing Significantly improve supplier performance in quality, performance (delivery, quality and cost) delivery an
Slide 69: Case Study: Manufacturing Productivity of Electric Actuation
Case Study: Manufacturing Productivity of Electric Actuation Project Scope Project Benefits Reducing Non-Value-Added Labor Content An objective, data-driven • Redesign assembly cell based on latest lean assessment of manufacturing productivity and identification 50% • manufacturing principles Docume
Slide 70: Case Study: Direct Material Sourcing - Castings
Case Study: Direct Material Sourcing - Castings Project Scope Project Benefits Reducing Number of Suppliers Centralized organization • Enhanced process for supplier qualification and structure that controls supplier selection and proliferation 20% • selection Consolidation based on performance, Appr
Slide 71: Commercial Workstream: Improve Sales Force Productivity
Commercial Workstream Improve Sales Force Productivity Organize sales teams regionally with a consolidated structure that results in improved spans of control and an ability to quote the entire product portfolio at each location Reduce selling costs while improving customer experience Clearly define
Slide 72: Growth Workstream: Capture Greater OE Market Share
Growth Workstream Capture Greater OE Market Share Define a set of priority market segments based on objective outside-in analysis of segment size and growth potential Grow market share through better definition of attractive markets Capture greater market share of selected market and focused efforts
Slide 73: Case Study: North American Pipeline Market
Case Study: North American Pipeline Market Project Scope Project Benefits Reduced Quotation Lead Times Redesigned multistage pumps and gate valves to meet • current market needs 50% Streamlined commercial organization with co- located resources Time to Release • Configured equipment packages and pri
Slide 74: Aftermarket Workstream: Capture Greater Share of Parts and Service Spending
Aftermarket Workstream Capture Greater Share of Parts and Service Spending Deploy commercial intensity program to generate incremental revenue of parts and services on our existing installed base Grow market share of our customer’s MRO spend through Extend the range of value-based services provided
Slide 75: Case Study: Commercial Intensity Program
Case Study: Commercial Intensity Program Project Features Project Benefits (South Texas Pilot) Enhanced customer intimacy Prioritization of accounts using • Increased Sales Engineers’ time spent on data-based customer segmentation 30% customer-facing activities Increase in Valuable • Increased under
Slide 76: Cost Structure Workstream: Reduce Product Cost and Corporate Overhead
Cost Structure Workstream Reduce Product Cost and Corporate Overhead Rationalize product lines to reduce product line complexity and de-proliferate options and variants Reduce product costs through rigorous product rationalization and Reduce product cost by eliminating unvalued features, Design-to-V
Slide 77: Case Study: Design-to-Value of an Industrial Pump
Case Study: Design-to-Value of an Industrial Pump Project Features Project Benefits Reduced number of options and variants Cross functional process to • Used voice of customer to align product features redesign core products to reduce cost while focusing on 57% • and offerings with the market needs
Slide 78: Working Capital Workstream: Optimize Inventory, Payables and Receivables
Working Capital Workstream Optimize Inventory, Payables and Receivables Reduce excess inventory levels through synchronizing purchasing activities with demand forecast, reducing safety stock levels and rationalizing parts across sites Improve primary working capital performance through newly created
Slide 79: Case Study: Inventory Reduction
Case Study: Inventory Reduction Project Features Project Benefits Reducing Raw Materials An integrated approach to • Inventory for active/forecast customer orders only reducing inventory through 9% • Master data management to allocate common parts across multiple facilities demand planning, governan
Slide 80: Organizational Health: Improving Our Company Culture
Organizational Health Improving Our Company Culture Strategic Clarity Making Flowserve 2.0 a part Recognition Employee Involvement of the way we THINK, ACT and OPERATE requires addressing organizational Employee health in parallel to Engagement processes and tools Performance Role Clarity We are emb
Slide 81: Case Study: Driving Employee Engagement
Case Study: Driving Employee Engagement Project Features Project Benefits Proactive change Employee Pride management program that • Recognizing associates for their role in early focuses on employee involvement and accelerating 300bps successes Employees who are • Connecting change efforts to our pu
Slide 82: IT Enablers and Data Science
IT Enablers and Data Science Accelerating Impact and Improving Decision-Making Enterprise-wide systems and solutions to drive process optimization and visibility Commitment to data Product Customer Enterprise governance and data Configure, Life Cycle Relationship Resource analytics to make better Pr
Slide 83: Financials & 2022 Targets
8 3 Financials & 2022 Targets Lee Eckert, SVP & CFO 2018 Analyst Day
Slide 84: Historical Performance
Historical Performance Industry Timeline $3.72 EPS * Operating Margin * $3.40 2010-2014: Post Financial Crisis $3.09 ▪ Recovery period post-financial crisis $2.84 ▪ Reasonable capital investment and solid maintenance spend $2.55 ▪ Excess capacity in the Flow Control industry limited pricing power $2
Slide 85: Return to Growth
Return to Growth Bookings Revenue $ millions $ millions Up 4% Up 6% • Solid year-to-date bookings growth includes strong aftermarket bookings and growth in all core end-markets with exception of power • Strong year-to-date sales growth on backlog conversion and improved manufacturing execution 2018
Slide 86: Improved Profitability
Improved Profitability 1 1 Adjusted Operating Income Adjusted EPS $ millions / Adjusted Margin % Up 14% Up 23% 70 bps 11.5% 9.3% 8.6% • Year-to-date adjusted operating margin improvement on execution, sales leverage and improved backlog quality, partially offset by compensation headwinds 1 Adjusted
Slide 87: Focused on Cash Flow
Focused on Cash Flow 1 Operating Cash Flow Adjusted Net Leverage $ millions Down 15% • Year-to-date operating cash flow down due to weak Q1, partially mitigated by strong Q2 and Q3 • Expect seasonally strong Q4 2018 cash generation • Adjusted net leverage is stable, including strong cash position 1
Slide 88: Working Capital Improvement
Working Capital Improvement 1 1 Inventory Turns 1 DSO 2018 Situation 2018 Highlights Down 6 days • Inventory performance impacted by inefficient 3.3x 3.3x 87 sales and operating planning 81 2.6x 2.6x • Reduction in year-to-date DSO driven by 75 substantial manual effort 74 • Working capital remains
Slide 89: Capital Structure Profile
Capital Structure Profile Debt Outstanding 1 Overview • Solid balance sheet with significant liquidity $1,073 • Cash balance at September 30 was ~$530 million • Liquidity enhanced by ~$420 million of capacity under ($ millions) the revolving credit facility $462 2 • Average interest expense on $1.4
Slide 90: Capital Deployment Priorities
Capital Deployment Priorities • Flowserve has demonstrated ability to flex capital deployment to changing market conditions • Our dual purpose is maximizing shareholder returns while maintaining financial flexibility • Flowserve’s near-term capital priorities include: ‒ Invest in Flowserve 2.0 trans
Slide 91: 2018 Guidance
2018 Guidance Guidance Assumptions 2018 Initial Guidance 2018 Reiterated Guidance Revenue Guidance 3% - 6% 5% - 7% Reported EPS Guidance $0.95 - $1.15 $0.75 - $0.85 Adjusted EPS Guidance $1.50 - $1.70 $1.65 - $1.75 EUR Rate 1.22 2018 Q4 - 1.15 Adjusted Tax Rate 27% - 28% 27% - 28% Capital Expenditur
Slide 92: 2022 Financial Target – Growth
2022 Financial Target – Growth Revenue Growth +2% above industry growth rate Key Flowserve 2.0 workstream examples: • Selection and prioritization of target markets • Strategic pricing • Commercial process enablers • Increased QRC utilization • LifeCycle Advantage agreements 2018 Analyst Day 92
Slide 93: 2022 Financial Target – Margin Expansion
2022 Financial Target – Margin Expansion Operating Margin 15-17% Key Flowserve 2.0 workstream examples: • Design-to-Value • Operational efficiency via lean manufacturing • Supply chain optimization • Shared services • Growth leverage on fixed costs 2018 Analyst Day 93
Slide 94: 2022 Financial Target – Capital Efficiency
2022 Financial Target – Capital Efficiency Free Cash Flow 100%+ of Net Income Key Flowserve 2.0 workstream examples: • Instill systemic A/R processes • Improve inventory management • Deploy sales and operations planning • Leverage enterprise investments 2018 Analyst Day 94
Slide 95: 2022 Financial Target – Returns
2022 Financial Target – Returns ROIC 15-20% • Growth, margin expansion and capital efficiency drive improved returns • Key metric for Flowserve 2.0 • Aligns Flowserve with shareholders 2018 Analyst Day 95
Slide 96: Focus on Shareholder Value Creation
Focus on Shareholder Value Creation Disciplined Capital Deployment Revenue Growth Free Cash Flow +2% 100%+ • Flowserve 2.0 above industry growth rate of Net Income • Organic growth investments Operating Margin ROIC • Opportunistic acquisitions 15-17% 15-20% • Return capital to shareholders 2018 Anal
Slide 97: Wrap-Up and Conclusion
~~ FLOWSERVE ~~ Wrap-Up and\Conclusion
Slide 98: Investment Highlights
Investment Highlights Distinguished history of flow control expertise with a heritage of more than 225 years Company Overview Diversified business model – geographies, end markets and products Recovering end markets, evidenced by year-over-year increased bookings Markets End Significant installed ba
Slide 99: The Transformation Journey
The Transformation Journey 2017 2018 2019 2020 2021 2022 STABILIZE TRANSFORM – FLOWSERVE 2.0 OPTIMIZE 2018 Analyst Day 99
Slide 100: Commitment to Technology
Commitment to Technology Lighter, Smaller Machines with Higher Pressures and Flows Superior Efficiency INVESTMENT IN PEOPLE, Product PROCESSES AND TOOLS Differentiation Higher Process Uptime Lower Maintenance Cost 2018 Analyst Day 100
Slide 101: Unlocking Flowserve's Full Potential
Unlocking Flowserve’s Full Potential 2018 Analyst Day 101
Slide 102: Creating Long-Term Sustainable Shareholder Value
Creating Long-Term Sustainable Shareholder Value Operating System Revenue Growth Free Cash Flow • Constructing Flowserve 2.0 operating model +2% 100%+ above industry growth rate of Net Income • Developing a flexible cost structure for any Operating Margin ROIC environment 15-17% 15-20% • Creating a
Slide 103: Flowserve Optimized
Flowserve Optimized • Engaged and empowered global Flowserve associates • Long-term, trust-based customer relationships • Differentiated product and service technology • Defined and integrated operating models and playbooks • Enterprise-wide business systems • Platform for growth • Flexible and nimb
Slide 104: Questions & Answers
Questions & Answers 2018 Analyst Day 104
Slide 105: Appendix
O7~-or, FLOWSERVE ~~ TINK BEYOND — \\ Yi, NEL sey
Slide 106: Industrial Capex Spend
Industrial Capex Spend Oil & Gas Chemical $500,000 $45,000 $450,000 $40,000 $400,000 $35,000 $350,000 $30,000 Capex $MM Capex $MM $300,000 $250,000 $25,000 $200,000 $20,000 $150,000 $15,000 $100,000 $10,000 $50,000 $5,000 $0 $0 Power Generation General Industries $8,000 $180,000 $7,000 $160,000 $6,0
Slide 107: Reconciliation of Non-GAAP Measures
Reconciliation of Non-GAAP Measures (Unaudited) Twelve Months Ended December 31, 2017 TrailingTwelve Months Ended September 30, 2018 (Amounts in millions, except per share data) As Reported (a) Adjustments As Adjusted As Reported (a) Adjustments As Adjusted Sales $ 3,660.8 $ - $ 3,660.8 $ 3,879.9 $
Slide 108: Reconciliation of Non-GAAP Measures
Reconciliation of Non-GAAP Measures (Unaudited) Twelve Months Ended December 31, 2015 Twelve Months Ended December 31, 2016 (Amounts in millions, except per share data) As Reported (a) Adjustments As Adjusted As Reported (a) Adjustments As Adjusted Sales $ 4,557.8 $ - $ 4,557.8 $ 3,990.5 $ - $ 3,990
Slide 109: Reconciliation of Non-GAAP Measures – FCD
Reconciliation of Non-GAAP Measures – FCD (Unaudited) TrailingTwelve Months Ended September 30, 2018 (Amounts in millions) As Reported Adjustments As Adjusted Sales $ 1,234.5 $ - $ 1,234.5 Operating income (loss) 203.8 (6.2) (1) 210.0 Operating income (loss) as a percentage of sales 16.5% 17.0% Twel
Slide 110: Reconciliation of Non-GAAP Measures – EPD
Reconciliation of Non-GAAP Measures – EPD (Unaudited) TrailingTwelve Months Ended September 30, 2018 (Amounts in millions) As Reported Adjustments As Adjusted Sales $ 1,913.5 $ - $ 1,913.5 Operating income (loss) 197.7 (35.3) (1) 233.0 Operating income (loss) as a percentage of sales 10.3% 12.2% Twe
Slide 111: Reconciliation of Non-GAAP Measures – IPD
Reconciliation of Non-GAAP Measures – IPD (Unaudited) TrailingTwelve Months Ended September 30, 2018 (Amounts in millions) As Reported Adjustments As Adjusted Sales $ 818.3 $ - $ 818.3 Operating income (loss) (28.7) (35.5) (1) 6.8 Operating income (loss) as a percentage of sales -3.5% 0.8% Twelve Mo
Slide 112: 2022 Financial Target Assumptions
2022 Financial Target Assumptions Revenue Growth Free Cash Flow +2% 100%+ above industry growth rate of Net Income Operating Margin ROIC 15-17% 15-20% Key assumptions include: no significant macroeconomic, geopolitical or terrorist-related disruptions that could have a material impact on our busines
Slide 113: Analyst Day Presenters
Analyst Day Presenters SCOTT ROWE President and Chief Executive Officer R. Scott Rowe, has served as President and Chief Executive Officer since April 2017. Prior to joining Flowserve, Mr. Rowe served as President of the Cameron Group, a position he assumed in April 2016 following the merger between
Slide 114: Analyst Day Presenters
Analyst Day Presenters KIRK R. WILSON President, Aftermarket Services & Solutions Kirk R. Wilson has served as President of Aftermarket Services & Solutions since September 2015. He has served in various roles since joining the Company in 1987, most recently as President, Services and Solutions Oper